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Rating Action:

Moody's confirms Toyota Industries' A2 ratings; outlook negative

 The document has been translated in other languages

08 Jun 2020

Tokyo, June 08, 2020 -- Moody's Japan K.K. has today confirmed Toyota Industries Corporation's (TICO) A2 issuer and senior unsecured ratings.

The rating outlook is changed to negative from rating under review.

This action was primarily prompted by Moody's decision to confirm Toyota Motor Corporation's (TMC) A1 long-term ratings with a negative outlook, as announced on 27 May 2020.

This action also concludes TICO's review for downgrade, which was initiated on 27 March 2020.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The automotive sector has been one of the sectors most significantly affected by the shock given its sensitivity to cyclical demand and sentiment.

The confirmation of TICO's ratings with a negative outlook primarily follows the same action on TMC's ratings, because TICO's ratings incorporate an uplift to reflect its strong business relationship with TMC and the cross-shareholdings between the two companies. The one-notch differential in the companies' ratings reflects the lack of a guarantee from TMC to TICO. To maintain the rating differential, the level of uplift from TICO's A3-level standalone credit quality is compressed to one notch, although the companies' longstanding and strong ties could potentially lead to a two-notch uplift.

TICO's standalone credit quality reflects the company's leading market position as a manufacturer of forklift and car air-conditioning compressors. Moody's expects TICO's competitive products, technological expertise, and extensive service network will support its long-term fundamental ability to generate cash flow, despite a likely significant market downturn in its automotive and material handling businesses through 2020 resulting from the coronavirus outbreak.

Moody's expects that TICO will implement cost cuts and other operational reforms to address near-term stress in its markets. TICO has a solid track record of maintaining its EBITA margin above 10% throughout the last few years, which is a level comparable to that of similarly rated peer such as Deere & Company (A2 stable). TICO's ample liquidity with a large amount of cash should also help the company contend with near-term stress.

Environmental, social and governance (ESG) factors play a role in Moody's assessment of TICO's credit quality. In terms of governance, in particular TICO's strong relationship with TMC is a significant credit factor. This relationship is underpinned by overlapping business ties, such as TMC being TICO's main customer accounting for about a tenth of its sales, and governance, as seen in their cross-shareholdings and secondment of management. TMC is also TICO's largest shareholder with an approximate 25% stake, while TICO in turn is TMC's largest shareholder with an 8% stake.

TICO also has exposure to environmental risks arising from challenges faced by the global automotive industry such as tightening emission regulations and evolving powertrain technologies. TICO's ratings incorporate its strong track record of meeting various demands from automobile manufacturers, such as greater fuel efficiency, as well as the leading market position of its electrified car air-conditioning compressors. Forklifts are also subject to emission regulations, although the electrification of TICO's products and the sector is at a more advanced stage than for the auto industry.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of TICO's ratings is unlikely in the near term, given the negative outlook.

The outlook could return to stable at the A2 level if the outlook on the TMC's A1 rating returns to stable, or if the underlying credit profile of TICO strengthens to such a degree that its fundamental credit strength improves to the A2 level, and the company is able to demonstrate a material decoupling from TMC.

Moody's could downgrade TICO's ratings if TMC's rating is downgraded, or if TICO's standalone credit profile weakens. Downward pressure on TICO's standalone profile would arise if the company reports a sustained decline in earnings such that its EBITA margin remains below 8%, or the company's debt/EBITDA (excluding captive finance operations) remains above 3.0x.

The principal methodology used in these ratings was Manufacturing Methodology (Japanese) published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216244. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Toyota Industries Corporation, headquartered in Aichi, Japan, is a leading manufacturer of lift trucks, car air-conditioning compressors, and air-jet looms.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating outcome announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ryohei Nishio
Analyst
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Mihoko Manabe
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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